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AJ Bell promising despite market jitters

The platform provider will be the third in the sector to list on London's markets this year
November 28, 2018

Given the high-profile flops of recent London IPOs Funding Circle (FCH) and Aston Martin (AML), it may seem an odd time to debut on public markets. However, AJ Bell hopes investors assessing the upcoming offer will look past fluctuating equity markets and towards longer-term trends, such as pension freedom changes. The price range for December’s offer has been set at between 154p and 166p a share, which will give the platform provider a market capitalisation in the range of £626m to £675m.

IC TIP: Buy

The offer is not only open to institutional investors, but also AJ Bell customers who had opened an online account by 15 October, with applications to participate due by 5 December. No new funds are being raised, with asset manager Invesco, chief executive and founder Andy Bell and Fergus Lyons, managing director of AJ Bell Investcentre, all selling part of their holdings. Invesco and Andy Bell will each retain a 25.5 per cent stake.

The IPO follows secondary offers from wrap platforms Nucleus Financial (NUC) and IntegraFin (IHP) – which are marketed to advisers managing their clients’ money – earlier this year, joining direct-to-consumer industry behemoth Hargreaves Lansdown (HL.). AJ Bell sits between the two, although its smaller direct-to-consumer business is growing much faster than it's advisory arm.

“The IPO really delivers on a promise I made to our institutional investors 11 years ago and it is something we have been planning in detail for a year or so now,” Andy Bell. “We knew about Brexit when we initially started thinking about the timetable at the beginning of the year, but this is a long-term growth story, so we haven’t worried too much about short-term market or political factors.” 

Demographics certainly underpin the investment proposition. The platform service provider market more than doubled assets under management to £500bn between the end of 2013 and mid-2017, according to the Financial Conduct Authority. That has been driven by an ageing population needing to save more and the decline of defined-benefit pension arrangements – along with pensions freedom changes – which have driven an increase in self-directed investment.  

Like its peers, AJ Bell has leveraged that demand – new customer numbers have grown at an annual compound rate of 24 per cent during the past six years, while retention levels were 95 per cent during the three years to September 2018.  

However, more volatile equity markets resulted in disappointing levels of new business for some platform providers during the third quarter, and weakened investor sentiment towards shares. AJ Bell – which did not disclose quarterly figures – gained £4.4bn in net inflows during the year to September, equivalent to 10 per cent of opening assets under administration. That compared with net new business of £7.4bn or 9 per cent of opening assets under administration for closest listed peer Hargreaves.  

“The upwards trajectory of stock markets over the long term is another growth driver, but it is only part of the story and so short-term volatility does not undermine the growth prospects of the platform sector,” says Mr Bell. However, the sector is also facing regulatory scrutiny over exit charges to clients removing their funds from the platform.